Gargiulo Company, a 90% Owned Subsidiary of Posito Corporation, Sells

Multiple Choice

Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to Posito at a 25% profit on selling price. The following data are available pertaining to intra-entity purchases. Gargiulo was acquired on January 1, 2010. $$\begin{array} { l c r r } & \mathbf { 2 0 1 0 } & \mathbf { 2 0 1 1 } & \mathbf { 2 0 1 2 } \\\text { Purchases by Posito } & \$ 8,000 & \$ 12,000 & \$ 15,000 \\\text { Ending inventory on Posito's books } & 1,200 & 4,000 & 3,000\end{array}$$ Assume the equity method is used. The following data are available pertaining to Gargiulo's income and dividends. $\begin{array}{lrrr}&2010&2011&2012\\\text { Gargiulo's net income } & \$ 70,000 & \$ 85,000 & \$ 94,000 \\\text { Dividends paid by Gargiulo } & 10,000 & 10,000 & 15,000\end{array}$
-Compute the equity in earnings of Gargiulo reported on Posito's books for 2010.

A) $63,000.
B) $62,730.
C) $63,270.
D) $70,000.
E) $62,700.